The Supreme Tax Court declared a Tax Office Ruling null. According to the ruling in a neutral contribution of assets to a Colombian entity in compliance with Section 319 of the Colombian Tax Code, the shareholder’s holding period of the assets contributed is not grand-fathered. On the contrary, once contributed to the Colombian entity, the term of possession restarts. 
 

In particular, the Supreme Tax Court exposed that, even if Section 319 of the Colombian Tax Code does not expressly refer to the transfer of the term of ownership of a contributed asset to a national company, under the tax-neutral regime, the assets’ tax attributes are preserved, including the holding period. 
 

In the ruling issued by the Tax Office, the entity concluded that, in an asset contribution to a Colombian entity under Section 319 of the Tax Code, the shareholder’s holding term over an asset is not preserved once contributed. According to the official interpretation, tax attributes of the contributed assets were preserved, but rules governing tax-neutral regime did not included term of possession.
 

However, in the recent judicial decision of the Supreme Tax Court, it was concluded the Tax Office position was not accurate. Therefore, in application of the tax-neutral regime for asset contributions, the holding period of the assets is grand-fathered.
 

According to the Supreme Tax Court, interpreting otherwise would disregard the neutral regime set forth for contributions to Colombian entities, modifying the tax treatment of a future asset sale (converting a capital gain for a profit subject to income tax).
 

This judicial decision has a positive impact on M&A operations, as well as on corporate reorganizations. It clarifies and supports the continuity of tax attributes of contributed assets to Colombian entities.
 

If you need assistance in analyzing the impact of the Supreme Tax Court decision, please contact us at impuestos@bu.com.co.